Customer Lifetime Value: An application in the rural petroleum market

Abstract

As building long term customer relationships becomes paramount to the success of agricultural input marketers, a question of focus is raised: Which customers should the firm attempt to build such relationships with? Customer Lifetime Value (CLV) is a concept some marketers have employed to better understand the long-term profit potential of specific customers or groups of customers. CLV is the net present value of the cash flow stream a customer is expected to generate for a firm over time. In this study, the CLV concept was employed to better understand the profitability of customers in the rural petroleum market. Findings suggest that customers in this market vary dramatically in the level of profits they generate for a firm. In addition, customer retention is important in this market with small reductions in customer retention rates leading to large reductions in CLV. A framework and modeling approach is also developed that marketers in other agribusiness industries may find useful as they attempt to measure and use customer lifetime value. © 1997 John Wiley & Sons, Inc.